Interview with Jesse Giffiths – International Conference P…

Interview – Dr. Lim Mah Hui

 

Interview – Dereje Alemayehu

More interviews coming up.

Before joining Eurodad, Maria was involved in work of a development-focused NGO, based in Andalusia (SP). She also enhanced her involvement in aid related issues at the Multilateral Cooperation and Humanitarian Aid Section of Polish MFA. Maria holds a Master’s Degree in European Studies from the University of Aberdeen (UK). She speaks Polish as her mother tongue, as well as English, Spanish and has a working knowledge of German.

The report also reveals that the British Virgin Islands (BVI), Cayman Islands, Bermuda, Gibraltar, Anguilla and Turks and Caicos – all British Overseas Territories – together with the Crown Dependencies of the Isle of Man, Jersey and Guernsey are now the largest source of Foreign Direct Investment in developing countries. The amount totalled US$556bn by 2011, the most recent year for which we have figures, and accounted for one in every ten US dollars of foreign direct investment made there.

This figure is concerning because investment is often structured through such jurisdictions specifically to enable tax dodging in poor countries. Other abuses they facilitate include the laundering of crime money, and ‘round tripping’, in which money originating in the developing country where it is to be invested is sent offshore and then returned disguised as foreign funds to qualify for major tax breaks.

Finally among the report findings are that the British Virgin Islands alone was the fourth largest investor to developing countries in 2011, with the amount involved US$388bn. It provides globally investment more than 860 times the size of its own GDP. That same year it was revealed that 45 newly incorporated companies in the BVI had acquired mining assets in the Democratic Republic of Congo at a loss, it was claimed, to the DRC’s economy of US$5.5bn. The identity of those behind the companies remains secret.

Download full report here.

After a year of negotiations with Member States and the European Commission, and strong involvement by Eurodad and our partners, the European Parliament this week voted in favour of new accounting rules for extractive and logging sectors. The Accounting Directive will require companies in these two sectors to disclose their payments to governments in every country where they operate.

While this is a vital step towards combating corruption, the question now is whether action will be taken to produce the transparency needed to fight tax evasion and avoidance. Knowing a company’s tax payments is not enough to assess whether those payments are fair, as it does not reveal where the real economic activity takes place. Forthcoming research from Eurodad and CIP into a European mining company in Mozambique provides a concrete example of how this lack of detailed reporting prevents citizens and tax authorities from detecting harmful tax practices. Assessing whether a company pays its fair share of taxes requires country-by-country reporting –including country-level disclosure of profits, sales, tax payments, assets and the number of employees.

Movements towards legislation

• It is very welcome that the EU has announced that the Capital Requirement Directive (CRD IV) will go further and require banks to disclose profits made, taxes paid, subsidies received, turnover and number of employees on a country-by-country basis.

• In France, President Hollande has signalled that he wants the reporting requirements for banks to be expanded to all large companies, and the French parliament has expressed its support.

• In Norway, a working group with participants from both the finance and foreign ministries has issued a report to the Ministry of Finance, recommending legislation that requires extractive and logging companies to disclose country-level reporting, not only of payments to governments (as has now been established in the Accounting Directive), but also on investments, sales revenues, production volume, purchase of goods and services and number of employees. The proposal is now subject to a public hearing.

• Michael Barnier, EU Commissioner for Internal Market and Services, also has higher ambitions than those presented in the Accounting Directive. While welcoming the European Parliament vote, he said:

“But we must go further now and take measures on more transparency on tax for all large companies and groups – the taxes they pay, how much and to whom. I think it should be possible to introduce rules for the publication of the information on a country by country basis, similar to those approved for banks in CRD IV, or in the Commission’s proposal on improving the transparency of certain large companies on non-financial reporting, adopted in April.”

This refers to a statement on 23 May where EU heads of state announced that they would like to see country-by-country reporting for all large companies included in the Non-Financial Reporting Directive, which was launched in mid-April. While the heads of states’ statement was vague, it is good news that Commissioner Barnier wants to include full country-by-country reporting, which is useful for tax authorities and others seeking to shed light on harmful tax practices.

Some Members of the European Parliament are also supportive of introducing country-by-country reporting for all large companies. The Legal Affairs Committee suggested an expansion to more sectors during the negotiations over the Accounting Directive. In order to fight tax evasion, it is crucial that reporting requirements include information on more than tax payments.

While heads of state across Europe have been bold in their statements on cracking down on tax havens following the “offshore leaks” and in response to increasing public anger around the tax affairs of companies such as Starbucks and Google, their willingness to actually put in place transparency laws has been slim. Member States can show they are serious by supporting efforts to put forward full country-by-country reporting in the Non-Financial Reporting Directive over the coming months.

Another opportunity not to miss this year is the review of the EU Anti-Money Laundering Directive. Leaders across Europe have asked journalists to leak information about tax dodgers in their countries. That should not be necessary. When reviewing the Anti-Money Laundering Directive, EU leaders have the perfect opportunity to put in place laws that require transparency of company and trust ownership. This will then reveal who controls and benefits from companies, as well as shedding light on complex structures that can be used to dodge taxes.

With almost 150 participants from 40 countries – including 33 participants from the South – the three-day event provided a great space for inspiring discussions about solutions to the current public/private debt crisis, and joint strategising on crucial issues related to finance and development. We used video/audio and social media to reach colleagues and allies who could not be there in person, and to give all the participants a chance to catch up on the parallel workshops they could not attend.

Highlights from discussions on the current debt crisis (day 1)

• How and why did we get into the current debt crisis?
  Watch our live streamed event, check the presentations of our great speakers, listen to inspiring insights from interviews with Dr. Lim Mah Hui (South Centre) and Dereje Alemayehu (Tax Justice Network Africa)
• Lessons from policy responses in Central and Eastern Europe: Watch our live streamed event
• Eurodad’s Director Jesse Griffiths shares his impressions and expectations at the end of the first day
• Here’s a selection of pictures from the first day
• Take a sneak peek at the interactive discussions on Twitter:
  “Countries contract targeting safety nets, hitting the poor. Crisis is not the time to decrease but to expand” @Isabel Ortiz, Columbia University
  “Default is an option. Argentina’s default liberated fiscal resources for socially necessary and productive uses.” @Alan Cibils, Universidad de Buenas Aires
  “Organizations and movements need to give people hope in a crisis”. @Lidy Nacpil, Jubilee South
  “Mah Hui Lim’s first act as king of the world: make banking safe, sound and boring” @Jubilee Scotland 
  

Highlights from discussions on the way forward (day 2)

• Solutions and suggestions for the way ahead: Watch the video of the plenary
• Take a sneak peek at the interactive discussions on Twitter: 
  ‏“Remember tribunal decided that Iceland was right not to pay UK and Netherlands back for failure of a private bank.” @EmmaSeery, Oxfam GB
  “Developing countries have become net creditors due to the money stashed in offshore tax havens.” @Lars Koch, IBIS
  “There is no ‘ideal’ model, but Argentina, Ecuador, Iceland can inspire. People’s participation crucial.” @ Eric Toussaint, CADTM
  
• See a selection of pictures from the second day
• Creating change – rethinking our strategies: Watch the video of the closing plenary

 Highlights from a strategising day (day 3)

• Eurodad presentation kicks off strategic discussions
• See a selection of pictures from our last day.

Thank you all for your feedback and for your contribution to the success of the conference!

Here’s what some of the participants said:

“Friendly Eurodad and Glopolis team made the Conference a welcoming and very good space to engage with the participants. Could learn and catch new ideas. Thanks for all Eurodad and Glopolis dedications and efforts.”
“Great sessions, good group of participants and speakers, well facilitated and planned plenaries. Thank you!”
“Congratulations for the excellent organisation and great atmosphere!”
“Excellent space for networking and planning for next steps. Very good agenda with lots of interesting and interactive sessions and excellent speakers.”

Keep following us on Facebook and Twitter to find out more about what happened at the conference!

On 30 May, Eurodad gave evidence to a European Parliament hearing nominally on how the EU can deliver better aid, but in reality focused on the controversial trend towards ‘blending’ aid to subsidise or support private sector investments in developing countries. In the context of the current work of the EU Platform for blending in external cooperation, set up to review and further enhancing the use of blending mechanisms, Eurodad argued that stakeholders involved should remain extremely cautious about the current mainstreaming of private sector blending as an instrument for development purposes.

Blending mechanisms: leveraging and development concerns

One of the main issues raised during the parliamentary hearing was “leveraging” private sector finance by using diminishing aid budgets. According the European Commission representative, blending mechanisms have been successful in pursing financial, non-financial and policy leverage. However, he had to admit that so far, most blending has been about subsidizing loans to public bodies, and the agenda to use aid to subsidise or incentivize private sector loans was an ambition rather than a reality in most cases. Financial leverage refers to the ability to attract “additional public and private resources for stronger development impact”. In their evidence, The European Commission and European Investment Bank (EIB) highlighted very different multiplier effect of blending facilities ranging from 8 times the EU-budget contribution, in the case of the EIB, to 30 times in the case of the Commission, mostly referring to public leverage. However, questions remain regarding the development implications of these seemingly impressive leverage ratios, as previous Eurodad research has pointed out.

Eurodad’ s evidence challenged several of the assumptions behind using public money to leverage additional financing, particularly private finance, echoing many of the concerns raised by civil society organisations:

• Private finance follows market trends leading to a concentration of resources, including focussing financing operations in middle-income countries, and in already favoured sectors, such as extractives and finance. The representative of the Latin American Association of Development Organisations (ALOP) argued that there is a high risk that financial returns will outweigh development objectives. 

• It is difficult to assess whether additional financial and development benefits are delivered by such mechanisms, or whether they merely replace other sources of private finance. Overseas Development Institute (ODI), who also gave evidence, noted that “leverage ratios do not have a one-to-one relationship with additionality.” An overarching question concerns whether grants leverage other resources, or vice versa. Private investors have profit-making objectives, so it is always important to ask who sets the overall goals and strategic direction.

• There is a high opportunity cost of investing scarce public money in this kind of instrument, particularly at a time when, as Eurodad research has shown, there is an urgent need for more public finance for investment in basic services.

• There is also insufficient attention to transparency and accountability. As confirmed by CSO and think tank research reports, the decision making process is done behind closed doors without clear criteria for project selection and limited information available to ensure efficient public participation and scrutiny.

• By increasingly leveraging debt based finance, there is potential debt risk for developing countries. This element has not been taken into account sufficiently. As the European Parliament rightly pointed out in its briefing note for this hearing, “care must be taken to ensure that the use of debt instruments does not reduce the focus on the poorest or increase developing countries’ debt burdens to unsustainable levels.”

It is also worth noting the valuable focus on donor cooperation and coordination as one of the main objective of the existing blending facilities. While donor coordination is an important element of the aid effectiveness agenda, Members of the European Parliament attending the hearing challenged the European Commission argument by mentioning that efforts towards greater coordination and harmonisation of donor practices should be pursued irrespectively of blending facilities, as it is in fact a binding requirement for EU Member States in the Lisbon Treaty (art.210).

Support to domestic resource mobilization is key

The Eurodad evidence also pointed to the huge need for traditional public resources to meet global poverty and environmental challenges. A recent Eurodad paper assessing financial resources available to developing countries includes the most comprehensive coverage. In 2011, the UN’s World Economic and Social Survey  “estimated additional investment needs of developing countries for sustainable development, including for climate change mitigation and adaptation, and for ensuring access to clean energy for all, sustainable food production and forest resource management, at about $1 trillion per year in the coming decades.” 

According to Eurodad research, domestic resources far outweigh private financial inflows, which suffer from problems of volatility and pro-cyclicality and can have widely varying development impacts. Thus, maximizing the value of domestic resources, including the use of aid to support domestic industries through, for example, procuring goods and services locally, while effectively plugging the leaks that allow illicit financial outflows would be a better place to focus development efforts and the debate about delivering better aid.

Watch the video recording of the event

The debt relief, announced by Brazilian president Dilma Rousseff on the occasion of the 50th Anniversary of the African Union, reflects Brazil’s growing prominence in the global political scene, and the increasing relevance of its relations with African countries.

According to news reports, Congo-Brazzaville will be the main beneficiary and will receive $352 million of debt relief, followed by Tanzania with $237 million and Zambia with $113.4 million. The other countries that are included in the initiative are Democratic Republic of Congo, Gabon, Ghana, Guinea Bissau, Ivory Coast, Mauritania, Sao Tome and Principe, Senegal and Sudan.  However the Brazilian government has released no concrete details, so key questions remain unanswered about the true value of this initiative, including: what form is this debt relief is going to take, cancellation or restructuring? Will be strings attached to the deal, such as commitments by the debtors to sign trade treaties or to commission new infrastructure projects with Brazilian contractors? On what basis and through what negotiations has this been agreed? Is Brazil going to treat each creditor the same way or it will reserve ‘special treatment’ for countries according to economic interest or negotiation power? This questions might be relevant for other countries following the example of Brazil, such as Algeria.

Brazil’s motivation to cancel African debt seems to be at least two-fold. On one hand Brazil is aiming to improve the economic and political relations with a region that has become an increasingly important economic partner for the Latin American power. On the other hand, Brazil is signalling to Western creditors that it is serious about taking part in international efforts by taking action on previous commitments to international debt relief.  At the same time, Brazil is also a debtor government, and citizens across the country are joining forces to carry out an audit of Brazil’s external debt with the aim of assessing the legitimacy of lenders’ claims.

Fuelling South-South relations

According to the Financial Times, under Brazilian law, Brasília cannot offer new loans and long-term financial assistance to countries with outstanding debts. Brazil has therefore a strong incentive to cancel debt to potential trading partners and investment markets in order to better position itself in a very competitive South-South trading environment that includes other emerging powers such as India and China that are increasingly engaged in Africa.

Brazil’s investment interests in Africa are strong.

Brazil’s trade with Africa jumped from $5 billion in 2002 to $26.5 billion in 2012.  Brazil’s partly state-owned oil company Petrobras has invested hundreds of millions of euros in Nigeria’s coal, oil, natural gas and alternative energy sectors, and the country’s mining giant Vale, the world’s biggest iron ore producer, has investments of  $7.7 billion in nine African countries. Finally, the state-owned BNDES development bank allocated $682 million dollars in 2012 for Brazilian companies operating in Africa, an increase of 46 per cent compared to 2011. The debt cancellation comes shortly after Brazil received criticism for a Mozambique mine operated by Vale, based on claims that the resettlement deal it offered was strongly opposed by local communities.

Brazil is planning to promote co-operation and trade further: Thomas Traumann, Brazil’s presidential spokesman told reporters at the AU meeting that “Almost all (aid) is cancellation” probably referring to debt and that “most of Brazil’s future assistance would target infrastructure, agricultural and social programmes”. He also mentioned that his country will attempt to export agricultural expertise in ‘tropicalising European crops’, transferring this technology from Brazil to other African countries. Projected Brazil-funded development projects, possibly connected to this debt relief include a $1 billion railway in Ethiopia and a drinking water dam in Mozambique.

Repeating the ‘old creditors’ mistakes?  

Brazil’s debt relief may free up resources that poor countries could use for more important things than servicing debts. However, it remains to be seen how far the emerging Latin American power will walk the same path as the ‘old’ creditors, whose debt relief has often been motivated by geostrategic and economic reasons, with harmful conditionality attached. Eurodad research showed that, between 2005 to 2009, 85% of the bilateral debts cancelled by Western creditors were debt resulting from export credit guarantees that did not have a development objective in the first place. Yet the debt cancellation has been counted as development aid, and falsely driven up aid figures. Moreover, it would be important to know what the origins of African countries debt to Brazil is, to allow an assessment of the legitimacy of the debt. According to the Financial Times, most of the debt origins in loans from the 1970s, but Brazil has not supplied further details, following bad practices of lack of transparency that often bedevils debt discussions.

While geostrategic and commercial reasons appear to be behind this current initiative, Brazil has should take this opportunity to show that it can do better, adhering to fair and transparent debt work-out principles, and not resort to ad hoc, creditor driven workouts towards its current and future debtors.

The Centre for Research on Multinational Corporations (SOMO) is an independent research and network organisation based in the Netherlands. It promotes social justice by investigating multinational corporations and the consequences of their activities for people and the environment around the world. SOMO coordinates several international networks such as OECD Watch, GoodElectronics and the MVO Platform. SOMO also trains and advises civil society organisations in research and advocacy.

Other Eurodad members

What are the reasons for this trend? What do the various players understand by private sector development? What strategies, concepts and theoretical approaches are being pursued? To what extent do PSD interventions contribute to inclusive development and poverty reduction? What role do the financial sector, industry and educational policy as well as local entrepreneurship play? What lessons can be learned from previous experience? These issues are the main focus of this year’s annual ÖFSE publication “Österreichische Entwicklungspolitik: Analysen, Berichte, Informationen”.

In this report, Eurodad’s Jeroen Kwakkenbos and Maria José Romero contributed to the chapter “Engaging the Private Sector for Development: The Role of Development Finance Institutions?” 

Read the full report

Ivan Lesay

Opening plenary 3/6

Alan Cibils

Mah Hui Lim

Isabel Ortiz

Lidy Nacpil 

Workshop 1 Global power shifts – the implications of changing geopolitics for change

Amar Bhattacharya

 Collins Magalasi

Adhemar Mineiro

Jana Matesová

Carlos Alonso Bedoya

Workshop 3  Auditing illegitimate debts as a step towards economic democracy

Gina Ekholt

Jihen Chandoul

Nessa Ni Chasaide

Maria Lucia Fattorelli

Cephas Lumina

Workshop 4 Reversing offshore economics and improving financial regulation

Rodrigo Fernandez

Petr Jansky

Rosie Sharpe

Workshop 5 Can public support to the financial sector be an appropriate mechanism for development? 

Nick Hildyard

Peter Chowla

Wiert Wiertsema

Jan Van de Poel

Lidy Nacpil

María José Romero

Workshop A European debt crisis – making the links

Nessa Ni Chasaide

Tim Jones

Alan Cibils

Sotiris Koskoletos

Njoki Njoroke Njehu

Workshop B  Reimagining sustainable public finance

Judith Tyson

Oscar Ugarteche (video)

Adhemar Mineiro

Esteban Serrani

Antonio Tricarico

Workshop C Sustainable solutions for debt crises: Fair and transparent debt work-out mechanisms

Juan Pablo Bohoslavsky

Alys Mumford

Bodo Ellmers

Eric LeCompte

Jürgen Kaiser

Jiri Silny

Kristina Rehbein

Workshop D Introduction to illicit financial flows and global tax dodging

TAX WARS

Joseph Stead

Pooja Rangaprasad

Dereje Alemayehu

Lars Koch

Sarah Johansen

Closing plenary 4/6

Jan Aart Scholte

Amar Bhattacharya

Nessa Ni Chasaide

Gina Ekholt

Eurodad Presentation